According to the Free-Cash-Flow Theory of Takeovers,many Acquisitions Are Motivated

question 43

Multiple Choice

According to the free-cash-flow theory of takeovers,many acquisitions are motivated by:

• A) an illogical assessment of earnings prospects.
• B) the remaining costs of the merger.
• C) the belief that free cash flow will no longer be misused.
• D) losses experienced by arbitrageurs and other speculators.

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Definitions:

Credit Period

Length of time allowed for payment of goods sold on account.

Discount Period

The time frame in which a payment can be made at a reduced rate.

Contra-revenue Account

An account that offsets revenue accounts on the income statement, such as sales returns, allowances, and discounts.

Sales Returns

Goods returned by customers after purchase, leading to a reduction in sales revenue.